Question

Find the cost of purchasing 150 shares of company, each of par value Rs. 10, quoted at Rs. 16 each in the market, from the original shareholder. Also, find the gain to the new shareholder if he sells each share at a premium of Rs. 10.

Answer 1

Step 1:

Given information:

Number of shares$=150$

Face value of each share in market$=\mathrm{Rs}.16$

Premium value $=\mathrm{Rs}.10$

Par value=$=\mathrm{Rs}.10$

Step 2:

Total cost of shares:

$$\begin{gathered} \mathrm{Total}\mathrm{cost}=\mathrm{Number}\mathrm{of}\mathrm{shares}\times \mathrm{Market}\mathrm{value}\mathrm{of}\mathrm{each}\mathrm{share} \\ \Rightarrow \mathrm{Total}\mathrm{cost}=150\times 16 \\ \Rightarrow \mathrm{Total}\mathrm{cost}=\mathrm{Rs}.2,400 \end{gathered}$$

Step 3:

Calculate gain:

premium value of each share$=10+10=\mathrm{Rs}.20$

$$\begin{gathered} \mathrm{Gain}=\mathrm{Number}\mathrm{of}\mathrm{shares}\times (\mathrm{Face}\mathrm{value}\mathrm{including}\mathrm{premium}-\mathrm{Market}\mathrm{value}\mathrm{of}\mathrm{each}\mathrm{share}) \\ \Rightarrow \mathrm{Gain}=150\times (20-16) \\ \Rightarrow \mathrm{Gain}=150\times 4=\mathrm{Rs}.600 \end{gathered}$$

Hence, the cost of purchasing 150 shares is Rs. 2,400 and gain to the new shareholder is Rs. 600.